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Monday, July 30, 2012
Weather
No major changes in forecast since last week. Midwest: Heat will be average (remember we are entering August and
average temperatures are higher than average June temps etc…) Temperatures this week will be in the 90s and over 100
from Nebraska and Kansas to Missouri and a part of southwestern Illinois while a few 90s occur east into southern
Indiana. Temperatures in the 90s and lower 100s will also impact the Delta early this week. Rain will be periodic but no
general soaking. This week rain fall will range from 0.20 to 0.75 inch most often with a few amounts of 1.00 to 1.50
inches. Next week will see similar amounts of rain. The heavier rainfall will be localized. The bottom line for the
Midwest shows a few rain storms with average temps
with continued crop stress—net drying will occur in most
places. Delta: periodic showers over the next 10 days
will help to reduce crop stress—however it will STILL be
a NET-DRYING environment. Northern Plains/
Southern Canadian Plains: dryness will continue to
expand over the next week to ten days raising need for
significant precipitation. The pattern only offers brief
periods of showers with little potential for a net increase
in soil moisture. Crop stress is impacting Montana,
western North Dakota, southern Alberta and southwestern
and south-central Saskatchewan. These conditions,
however, are ideal for harvest. Southeast EU: Needs
rain. Ukraine: Dry- rain is needed to prevent further
deterioration of crops.—This isn’t just a US issue.
China: Soil is drying out- rain will be needed soon.
News

China’s NGOIC says the Chinese government will resume auctions of Soybeans from state reserves. This week
400,000 mt. will be offered out of reserves.

India continues to experience problems with their monsoon season. To date rainfall is running 21% below
average and the forecast is for August rainfall to be less than previously forecast.

Saskatchewan weekly report puts Canola crop conditions at 18% excellent, 57% good, 17% fair and 8% very
poor-poor. It also puts winter wheat conditions at 23% excellent, 67% good, 8% fair and 2% very poor-poor.
Spring wheat conditions province wide were 20% excellent, 64% good, 14% fair and 2% very poor-poor.

The Argentine Agriculture Ministry says dry weather has started to affect the Wheat crop in some regions even
though the crop only 88% planted.
Disclaimer: Commodity trading and other speculative/ hedging investment practices involve substantial risk of loss. PAST RESULTS ARE NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS when utilizing the commodities markets. Gulke Group and its officers, directors, employees and affiliates may take positions
for their own accounts that are the same or that are different to the positions and to the contracts referred to herein. This material and any views expressed herein
are provided for informational purposes only and should not be construed in any way as an endorsement or inducement to invest. Prices used in trade
recommendations are already reflective of known information.

Ethanol industry watchers say governors from TX, NE, AR and SC are said to be preparing petitions to the US
EPA for delivery next week to ease ethanol RFS requirements as the drought is hurting various industries that use
grain as feed.

Doane Crop Tour - Day 4. Corn yield prospects in central Iowa are the strongest of the state, Ear counts were
consistently at 30,000 or higher and ear size was close to average. Yield checks ranged from 145 bu/acre to near
200 bu/acre. Overall, most yields are expected to be steady to 20% lower from a year ago. Soybean yield
prospects again graded toward the upper 30s to low 40s rather than typical yields toward 50 if not higher. Read
more here.

US corn acreage forecast cut again. Soybean & Corn Advisor Inc.'s Michael Cordonnier says "due to the
widespread nature of the drought this year, the 2012 corn harvested acreage is being reduced to 84.0 million acres
(down 4.3 million from July 10), which means that 13% of the corn will not be harvested for grain. The only
reason why I did not make it as bad as 1988 is because the corn hybrids today are better suited to tolerate dry
conditions than the hybrids that were used in 1988. Read more here

Dr. Cordonnier's soybean harvested acreage estimate has been lowered an additional 500,000 this week to
73.3 million acres. That now puts the crop at 2 million acres less than what was estimated in the June Acreage
Report (75.3 million acres).

Tate & Lyle said it was hoarding corn "against a backdrop of tight market conditions" as it highlighted the
threat to users of the grain from prospects for disappointing US, and European, harvests. The group, which uses
some 2% of the US corn crop, said would extend a "strategy of maintaining full corn silos in the US to secure
supply" of a grain whose price has soared more than 50% in Chicago thanks to expectations for a droughtdepleted American harvest. Read more here
Insurance Discussions
Insurance Hedging Strategy: With the recent dramatic run up in corn and all grains, it may be time to consider taking
action to protect any insurance indemnity payments that are now at risk IF corn were to take downturn between now and
the end of October when the average price of Dec Corn during the month of October will be calculated and used for
insurance payments. The strategy described below is particularly important for those who will have a PRODUCTION
SHORT FALL, as they will be even more dependent on insurance revenue to offset the loss of revenue due to production
damage. The strategy described here should be applied to the number of bushels that are covered by your particular level
of insurance (70, 75, 80 or 85%).
If an insured farmer has RP insurance he can sell CZ12 futures at current market levels (+/- $7.85) against his
guaranteed bushels through insurance. We would recommend that he hold these futures until the end of October. By doing
this, he will lock in a revenue level that will be relatively constant regardless of the futures price changes between now
and when the Harvest Price is determined at the end of October.
Here are examples to demonstrate how this works.
Assumptions:
• APH of 180 bushels
• 80% Revenue Protection (Harvest Price Option is in place).
• Guaranteed bushels of 144 (amount that will hedge/sell futures against).
• The current December contract price is $7.85.
• Actual production is 100 bushels and limited forward cash sales
Disclaimer: Commodity trading and other speculative/ hedging investment practices involve substantial risk of loss. PAST RESULTS ARE NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS when utilizing the commodities markets. Gulke Group and its officers, directors, employees and affiliates may take positions
for their own accounts that are the same or that are different to the positions and to the contracts referred to herein. This material and any views expressed herein
are provided for informational purposes only and should not be construed in any way as an endorsement or inducement to invest. Prices used in trade
recommendations are already reflective of known information.
$6.85 Oct. Futures Price: At a $6.85 futures price, revenues from cash sales, crop insurance, and hedging gains or losses
are calculated as follows:
• Crop Revenue: 100 bu x $6.85 cash price = $685 per acre
• Insurance Indemnity: 44 bu x $6.85 = $301 per acre
• Hedging of Futures: 144 bu x $1 ($7.85-$6.85)= $144 per acre
• Total Revenue: $680 + $301 + $144 = $1,125 per acre
$8.85 Oct. Futures Price: At an $8.85 futures price, the following revenues occur:
• Crop Revenue: 100 bu x $8.85 = $885 per acre
• Insurance Indemnity: 44 bu x $8.85 = $389 per acre
• Hedging of Futures: 144 bu x -$1 ($7.85-$8.85= -$144 per acre
• Total Revenue: $880 + $389 - $144 = $1,125 per acre
* Keep in mind that in an up-market you will have to meet some margin calls!
This exercise shows how each of the three components (crop revenue, insurance, and hedging) is affected in an up or
down market. It also shows how these components help to offset each other so that a revenue price, set at the time the
hedge was put on, may be locked in. A yield variation should not alter this methodology. This should translate for anyone
who is expecting less than his guaranteed bushels. One area that will have some variation is going to be Crop Revenue:
This may be affected by Basis and cash sales done that are not at or near the October futures price level.
There are different ways one can approach this hedge depending on his comfort zone. One variation is to hedge up to the
insurance level all at once. Another is to put this hedge on in increments if it is thought that the markets are going higher
and one would like to try and diminish potential margin calls. Another is to only do this on a portion of the bushels and to
market the rest of the bushels in another fashion.
If you have any questions in regards to implementing this insurance hedge based on your current hedging positions
contact Jamie at 707-365-0601 or email him at Jamie@GulkeGroup.com. If your agent has not presented this to you then
talk to Jamie about writing insurance through him.
CFTC Large Spec Report
Disclaimer: Commodity trading and other speculative/ hedging investment practices involve substantial risk of loss. PAST RESULTS ARE NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS when utilizing the commodities markets. Gulke Group and its officers, directors, employees and affiliates may take positions
for their own accounts that are the same or that are different to the positions and to the contracts referred to herein. This material and any views expressed herein
are provided for informational purposes only and should not be construed in any way as an endorsement or inducement to invest. Prices used in trade
recommendations are already reflective of known information.
Last Friday’s report showed the large spec
increasing their positions is Corn and Wheat.
However there was a reduction of positions in the
Soybean market. The Large spec has reached an
“extreme” position in the soybean market, and it
appears that it is selling off some of the soybean
positions- along with meal and oil. There is room,
however, for buying in the corn however should a
catastrophic event evolve with USDA’s Aug 10th
report, the large spec may be speculating that when
there is an obvious need for political action of some
sort, they don’t want much exposure????
Disclaimer: Commodity trading and other speculative/ hedging investment practices involve substantial risk of loss. PAST RESULTS ARE NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS when utilizing the commodities markets. Gulke Group and its officers, directors, employees and affiliates may take positions
for their own accounts that are the same or that are different to the positions and to the contracts referred to herein. This material and any views expressed herein
are provided for informational purposes only and should not be construed in any way as an endorsement or inducement to invest. Prices used in trade
recommendations are already reflective of known information.
Comments
The rainfall and lower temperatures that were in late last week’s outlook, diminished considerably it seems over the
weekend. While rainfall was seen in some areas as the three day rainfall map shows, the heat continues in already
parched areas. Some comments from my DTN column below further outline the problem that are seemingly increasing
day by day. We discussed possibilities last week regarding locking in the insurance payout that some are likely facing
currently. The same task for managing the price risk for those with a crop is also daunting. No easy answers that don’t
require significant capital especially locking in the insurance payout. It involves personal risk bearing ability and access
to capital. If other drought situations are any indication, the market will price in worst case with price increases that tend
to evaporate before the October crop revenue determination for RP Insurance. While it may take longer to curb demand
significantly, we do not yet know the magnitude of the crop reduction. Obviously $8 + corn doesn’t work into many if
any end user P/L statements yet we hear of end user comments that they have no immediate intention to cut back yet?
This gives rise to a very volatile situation. The higher the prices go the more reasonable prices look psychologically a
dollar lower! Also the popular premise that prices will fall eventually when the other guy quits may give a false sense of
comfort to some. The unknown crop revenue insurance payout also muddies the water as it is beneficial to get the
maximum payout. Buying puts and rolling them up is costly and can result in big losses especially if prices continue to
rise week over week. The bottom line is that crop insurance will have the benefit of yielding a good year for some who
have a crop disaster provided cash forward sales are not excessive and certainly not over the guaranteed level of
production offered by crop RP insurance.
Markets & Recommendations
Yesterday’s Trades : Feeder Cattle – For Q3 and Q4, bot FCQ at 138.42($6900 profit/contract).
ADVICE: The decision for end users is getting grave and with each passing day and new weekly crop ratings (out this
afternoon) the decision becomes more acute and urgent. Those that cut back quickest will save working capital and likely
be able to come back quicker if/when prices do fall considerably. Those that wait could exhaust their capital and be unable
to function efficiently when the better times to re-appear. The same goes for the crop producer who through crop
insurance, and selling what is produced, could still come out of a year like this with break-even or a gross as good as if he
had produced a crop at lower prices. The decision making process becomes more personal and individual with about as
many scenarios as there are producers---- complex is an understatement.
Pre-9:30 advice was to lift 25% of all current futures hedges on a price pullback that may occur under normal trading
environment. Lift 25% of CZ12 at $8.10; and 25% of soybeans at SX12 at $16.32. The 8.10 level was hit a few times just
prior to 9:30 where upon CZ rallied ---we will assume 25% was lifted at that level, if you did not, leave the order in place.
SX 16.32 did not get hit yet, however we will leave that level in for now--- In addition, since we only have a 10% hedge
position in Soybean futures, change the order to lift the 10% position rather than 25% of futures. For wheat we
have only a 10% paper futures hedge at 893 ¼---- we’ll leave in place for now with 30% left for 2012 and only a 5%
hedged for 2013—no change for wheat. We will adjust corn and soybean orders later this morning or noonish if we see
the necessity. Fcattle are lower as expected but a $1.00 off the lows—we have limited hedges for those who raise them--no change there---if you plan to sell them, might look to doing so while market is looking for silage eaters? No change in
the 15% futures position in Canola --- No change for any of the 2013 hedges for now---- technically the new highs have
not changed the daily negative situation --- it will take more time and price fluctuation to do so---we’ll keep some
patience for now--- Mid Day likely during noon-hour and after next weather maps. The Large Spec action or lack
of action to appreciably want large long positions is interesting and may be indicating a lack of desire to be involved
if there is a catastrophic event evolving that requires political action in the energy market?
Disclaimer: Commodity trading and other speculative/ hedging investment practices involve substantial risk of loss. PAST RESULTS ARE NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS when utilizing the commodities markets. Gulke Group and its officers, directors, employees and affiliates may take positions
for their own accounts that are the same or that are different to the positions and to the contracts referred to herein. This material and any views expressed herein
are provided for informational purposes only and should not be construed in any way as an endorsement or inducement to invest. Prices used in trade
recommendations are already reflective of known information.
Overnights Markets: Dow +-21, Dollar +.20, Crude -.29, Nat Gas +0.130, Hogs no overnight trade, Cattle no overnight
trade Cotton -.14, Gold -$1.70
CORN: 2012: Hedged 50% (25%, cash, 25% futures). 2013: 30% (10%, cash, 20% futures) . END USERS: No
hedges.
SOYBEANS: 2012: Hedged 85% (65% cash, 20% futures). 2013: Hedged 45% (25 % cash, 5% futures). End Users
No hedges. .
WHEAT: 2012: Hedged 90% (60% cash, 30% futures). 2013: Hedged 15% (10% cash, 20% futures).
SPRING WHEAT: 2012: No hedges
CANOLA: 2012- 50% hedged. (25% cash 25% futures) 2013 15% hedged (10% cash, 5% futures)
Rice: 2012 30% hedged
Cotton: 0% hedged.
SPEC No positions
LIVESTOCK:
Live Cattle: 2012: Short 25% in Q3 and Q4. Short 25% in Q1 2013.
Feeder Cattle: 2012: Producers – no hedges. End Users – no hedges.
Lean Hogs: 2012: Hedged 25% for Q3 and 0% for Q4.
Cotton: Trading slightly lower this morning, CFTC showing Managed Money adding to short positions---that’s
not good for prices. We’ll use a move below 69.80 to rehedge 20%.
Rice: Getting close to making new highs, and grains are rocketing higher this morning. Use a buy stop at 15.80
to exit the 30% hedge we put on.
Disclaimer: Commodity trading and other speculative/ hedging investment practices involve substantial risk of loss. PAST RESULTS ARE NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS when utilizing the commodities markets. Gulke Group and its officers, directors, employees and affiliates may take positions
for their own accounts that are the same or that are different to the positions and to the contracts referred to herein. This material and any views expressed herein are
provided for informational purposes only and should not be construed in any way as an endorsement or inducement to invest. Prices used in trade recommendations
are already reflective of known information.
Disclaimer: Commodity trading and other speculative/ hedging investment practices involve substantial risk of loss. PAST RESULTS ARE NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS when utilizing the commodities markets. Gulke Group and its officers, directors, employees and affiliates may take positions
for their own accounts that are the same or that are different to the positions and to the contracts referred to herein. This material and any views expressed herein are
provided for informational purposes only and should not be construed in any way as an endorsement or inducement to invest. Prices used in trade recommendations
are already reflective of known information.